The AP high court on Tuesday stayed the moves of the Income Tax department to encash the bank guarantee worth Rs 617 crore tendered by Mahindra Satyam. Granting an interim relief to IT consulting and outsourcing firm Mahindra Satyam, the court also ordered a status quo on the assessment proceedings.

Under the directions of the Supreme Court, the company deposited a bank guarantee of Rs 617 crore last April with the I-T department against its notice for the same amount from 2003-04 to 2008-09, the years for which Satyam Computers, the erstwhile owners of the company, was asked to pay tax. The bank guarantee that Mahindra Satyam subsequently furnished was valid until December 31, 2011.

Earlier, when the Central Board of Direct Taxes wanted to encash the bank guarantee, Mahindra Satyam moved the Andhra Pradesh High Court requesting for relief as the date of encashing the guarantee had lapsed and that it was challenging the CDBT's fundamental claim of taxing the fraud-hit firm. The Income Tax department slapped this notice after disallowing exemptions claimed by the company.

The company has received draft notices of demand for Rs 1,037 crore and Rs 1,075 crore for assessment years 2002-03 and 2007-08. Ever since payment was demanded of Satyam, the firm has been constantly engaging with the tax department saying the computation of the tax dues were made based on the fictitious revenues recorded by B Ramalinga Raju, the founder of Satyam. Satyam has been seeking return or adjustment of taxes paid on inflated income when the company was still managed by the former management.

Mahindra Satyam has in several writ petitions filed before the AP High Court, challenged the re-opening of the assessment of AY 2002-03 and sought directions that fresh assessments should be carried out after removing the fictitious sales and fictitious interest.

All through, the I-T department has said there is no provision in the income tax law that allows a company to understate its income and re-compute tax liability after the assessment has been completed.

In August last year, the I-T firm set aside Rs 400 crore as provision for taxation anticipating a demand for payment of tax.

For the quarter ended June 30, 2011, it paid taxes of Rs 42.55 crore and Rs 58 crore for 2010-11. The company also challenged in the high court the I-T department's decision to call for a special audit of accounts for 2001-07. Satyam Computer Services, which was hit by a Rs 7,000-crore fraud committed by its owner B Ramalinga Raju, was taken over by the Mahindra group in 2009 and renamed Mahindra Satyam.